Econ 202: Economics Exam Trivia Quiz!
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Questions and Answers
- 1.
(Figure: Rent Controls) Examine the figure Rent Controls. If rent controls are imposed and the government wants them to be immediately effective, they will most likely be set at either _____ or _____.
- A.
Rent3; Rent4
- B.
Rent2; Rent4
- C.
Rent1; Rent3
- D.
Rent0; Rent1
Correct Answer
D. Rent0; Rent1Explanation
If the government wants rent controls to be immediately effective, they will most likely be set at Rent0 and Rent1. This is because Rent0 represents the maximum rent that landlords are allowed to charge, while Rent1 represents the actual rent that tenants are required to pay. By setting Rent0 at a lower level than Rent1, the government ensures that landlords cannot charge excessive rents, thus making housing more affordable for tenants.Rate this question:
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- 2.
The likely result of a price floor is a:
- A.
Shortage of the good at a price below the market equilibrium price.
- B.
Surplus of the good at a price above the market equilibrium price.
- C.
Shortage of the good at a price above the market equilibrium price.
- D.
Surplus of the good at a price below the market equilibrium price.
Correct Answer
B. Surplus of the good at a price above the market equilibrium price.Explanation
A price floor is a government-imposed minimum price set above the market equilibrium price. This means that the price at which buyers and sellers are willing to trade is lower than the price floor. As a result, there is a surplus of the good because suppliers are producing more than what consumers are willing to buy at the higher price. This surplus occurs when the quantity supplied exceeds the quantity demanded, leading to an excess supply of the good.Rate this question:
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- 3.
(Table: Quantity Supplied and Quantity Demanded) Examine the table Quantity Supplied and Quantity Demanded. The government institutes a price floor, and as a result, too many resources are allocated for the production of a good. The price floor in this market must be equal to:
- A.
$10
- B.
$5
- C.
$15
- D.
$20
Correct Answer
D. $20Explanation
A price floor is a minimum price set by the government for a good or service. It prevents prices from falling below a certain level. In this case, the government institutes a price floor that results in too many resources being allocated for the production of a good. This suggests that the price floor is set higher than the equilibrium price, causing an excess supply. Among the given options, the only price that is higher than the equilibrium price is $20. Therefore, the correct answer is $20.Rate this question:
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- 4.
(Figure: The Market for Round-Trip Airline Flights) Examine the figure The Market for Round-Trip Airline Flights. The supply and demand graph represents the market for round-trip airline flights between Boston and New York. Suppose the mayor of New York decides to limit the number of flights to Q1 to reduce air pollution. What area or areas represent deadweight loss after the quota is in place?
- A.
A + b + c
- B.
C + e
- C.
B + d + f
- D.
A
Correct Answer
B. C + eExplanation
After the quota is in place, the area represented by c + e on the graph represents the deadweight loss. This is because the quota limits the number of flights to Q1, which reduces the quantity of flights traded in the market. As a result, there is a decrease in consumer surplus (area c) and a decrease in producer surplus (area e). The deadweight loss represents the loss of total surplus in the market due to the reduction in quantity traded caused by the quota.Rate this question:
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- 5.
(Figure: The Market for Used Books) Examine the figure The Market for Used Books. The graph shows the market for used economics textbooks. If a quota of 100 books is imposed, the amount of the deadweight loss is:
- A.
$1,000.
- B.
$5,500.
- C.
$6,750.
- D.
$16,000.
Correct Answer
C. $6,750.Explanation
In the figure, the deadweight loss represents the loss of economic efficiency due to the imposition of a quota. The deadweight loss is the triangle formed between the supply and demand curves, and the quota quantity. In this case, the quota is set at 100 books, which creates a shortage in the market. The deadweight loss is calculated by finding the area of the triangle, which is equal to 1/2 * base * height. The base is the difference between the equilibrium quantity and the quota quantity, and the height is the vertical distance between the supply and demand curves at the quota quantity. Calculating this, we find that the deadweight loss is $6,750.Rate this question:
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- 6.
In which case will an increase in the tax rate most likely decrease tax revenue?
- A.
The elasticity of demand is 0.2 and the elasticity of supply is 2.1.
- B.
The elasticity of demand is 3.3 and the elasticity of supply is 2.1.
- C.
The elasticity of demand is 0.2 and the elasticity of supply is 0.5.
- D.
The elasticity of demand is 3.3 and the elasticity of supply is 0.5.
Correct Answer
B. The elasticity of demand is 3.3 and the elasticity of supply is 2.1.Explanation
An increase in the tax rate is most likely to decrease tax revenue when the elasticity of demand is high (in this case, 3.3) and the elasticity of supply is low (in this case, 2.1). A high elasticity of demand means that consumers are very responsive to changes in price, so if the tax rate increases, they will likely decrease their demand for the taxed good, resulting in lower tax revenue. On the other hand, a low elasticity of supply means that producers are less responsive to changes in price, so they may not increase their supply enough to offset the decrease in demand, further reducing tax revenue.Rate this question:
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- 7.
When the government imposes an excise tax in a market with a downward-sloping demand curve and an upward-sloping supply curve:
- A.
Consumer surplus falls.
- B.
A deadweight loss is created.
- C.
Consumer surplus falls, producer surplus falls, and a deadweight loss is created.
- D.
Producer surplus falls.
Correct Answer
C. Consumer surplus falls, producer surplus falls, and a deadweight loss is created.Explanation
When the government imposes an excise tax in a market with a downward-sloping demand curve and an upward-sloping supply curve, consumer surplus falls because the tax increases the price paid by consumers, reducing the quantity demanded. Producer surplus also falls because the tax reduces the price received by producers, leading to a decrease in the quantity supplied. Additionally, a deadweight loss is created because the tax distorts the market equilibrium, causing a reduction in overall welfare and efficiency.Rate this question:
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- 8.
(Figure: The Shrimp Market) Examine the figure The Shrimp Market. If the government wants to limit shrimp sales to 500 pounds, it can impose a _____ excise tax on sellers, and the total tax revenue generated will be ____.
- A.
$7.50; $7,500
- B.
$10; $2,500
- C.
$5; $2,500
- D.
$6.50; $3,000.
Correct Answer
C. $5; $2,500Explanation
The government can impose a $5 excise tax on sellers to limit shrimp sales to 500 pounds. This tax will generate a total tax revenue of $2,500.Rate this question:
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- 9.
Suppose Congress passed a new tax system, such that all federal, state, and local taxes were replaced with one tax: a tax of $14,000 for every person 18 and older. This new tax system would clearly improve:
- A.
Tax equity.
- B.
Government revenue.
- C.
Tax fairness.
- D.
Tax efficiency.
Correct Answer
D. Tax efficiency.Explanation
The new tax system of replacing all federal, state, and local taxes with a single tax of $14,000 for every person 18 and older would improve tax efficiency. This is because it simplifies the tax system by eliminating multiple taxes and replacing them with a single tax. This would reduce the administrative burden and costs associated with collecting and managing multiple taxes, making the overall tax system more efficient.Rate this question:
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- 10.
Government intervention in the form of binding price floors or binding price ceilings will:
- A.
Result in either surpluses or shortages.
- B.
Always enhance the efficiency of the market.
- C.
Move the market toward its equilibrium quantity more quickly.
- D.
Often be seen as necessary to decrease the existence of black markets.
Correct Answer
A. Result in either surpluses or shortages.Explanation
Government intervention in the form of binding price floors or binding price ceilings can result in either surpluses or shortages. When a price floor is set above the equilibrium price, it creates a surplus as the quantity supplied exceeds the quantity demanded. On the other hand, when a price ceiling is set below the equilibrium price, it creates a shortage as the quantity demanded exceeds the quantity supplied. Therefore, government intervention can lead to imbalances in the market, causing either surpluses or shortages depending on the specific intervention.Rate this question:
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- 11.
To maximize total net benefit from a particular activity, consumers and firms evaluate each activity at the:
- A.
Top.
- B.
Average.
- C.
Margin.
- D.
End.
Correct Answer
C. Margin.Explanation
To maximize total net benefit from a particular activity, consumers and firms evaluate each activity at the margin. This means that they assess the additional benefit or cost of engaging in one more unit of the activity. By comparing the marginal benefit with the marginal cost, they can determine whether the activity is worth pursuing further. Evaluating at the margin allows for efficient decision-making by considering the incremental impact of each additional unit of the activity.Rate this question:
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- 12.
(Table: Marginal and Total Benefit) Examine the table Marginal and Total Benefit. Sed is deciding how many football games he wants to attend this year. If tickets to each football game cost $10, then he should attend _____ game(s).
- A.
2
- B.
5
- C.
1
- D.
0
Correct Answer
B. 5Explanation
Based on the table, the marginal benefit of attending each additional football game decreases as Sed attends more games. However, the total benefit of attending each game is positive and increases with each additional game. Since the cost of attending each game is $10, Sed should attend as many games as the total benefit exceeds the cost. In this case, the total benefit exceeds $10 for all 5 games, so Sed should attend 5 games.Rate this question:
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- 13.
A “how much” decision is best made by comparing the:
- A.
Marginal benefits of an action to the marginal costs of that action.
- B.
Present value of an action to the net present value of that action.
- C.
Accounting profit of an action to the economic profit of that action.
- D.
Explicit costs of an action to the implicit costs of that action.
Correct Answer
A. Marginal benefits of an action to the marginal costs of that action.Explanation
When making a "how much" decision, it is important to compare the marginal benefits of an action to the marginal costs of that action. Marginal benefits refer to the additional benefits or gains that will be obtained from taking the action, while marginal costs refer to the additional costs or sacrifices that will be incurred. By comparing these two factors, one can determine whether the benefits outweigh the costs and make an informed decision about the optimal quantity or level of the action to undertake. This approach ensures that resources are allocated efficiently and maximizes overall welfare or utility.Rate this question:
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- 14.
On Saturday night Alice plans to attend a movie. She buys a ticket for $7 and then loses it. According to marginal analysis, she should:
- A.
Buy another ticket and attend the movie only if her marginal benefit of seeing the movie is more than $14.
- B.
Buy another ticket and attend the movie.
- C.
Look for the lost ticket.
- D.
Go home.
Correct Answer
B. Buy another ticket and attend the movie.Explanation
According to marginal analysis, Alice should buy another ticket and attend the movie. Marginal analysis involves comparing the marginal costs and marginal benefits of a decision. In this case, the marginal cost of buying another ticket is $7, while the marginal benefit of seeing the movie is not mentioned. However, since Alice still wants to attend the movie, it can be inferred that her marginal benefit of seeing the movie is greater than the cost of buying another ticket. Therefore, it is rational for her to buy another ticket and attend the movie.Rate this question:
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- 15.
Loss aversion can help to explain why:
- A.
There is a status quo bias.
- B.
People have unrealistic expectations about the future.
- C.
People engage in mental accounting.
- D.
Sunk costs are hard to ignore.
Correct Answer
D. Sunk costs are hard to ignore.Explanation
Sunk costs are hard to ignore because of loss aversion. Loss aversion refers to the tendency of individuals to strongly prefer avoiding losses rather than acquiring gains. When people have already invested time, money, or effort into something, they perceive it as a loss to abandon it. This leads to a bias in decision-making where individuals continue to invest in a project or endeavor, even if it is no longer rational or beneficial, simply because they want to avoid the feeling of loss associated with the sunk costs.Rate this question:
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- 16.
The purpose of behavioral economics is to determine why:
- A.
People maximize utility.
- B.
People make decisions that appear to be irrational.
- C.
Firms maximize profit and minimize costs.
- D.
Markets usually behave in an efficient manner.
Correct Answer
B. People make decisions that appear to be irrational.Explanation
Behavioral economics is a field that aims to understand and explain the decision-making processes of individuals. It focuses on the fact that people often make choices that seem irrational or inconsistent with traditional economic theories. By studying these seemingly irrational behaviors, behavioral economics seeks to uncover the underlying psychological and cognitive factors that influence decision-making. This helps in developing a more accurate understanding of human behavior and designing effective policies and interventions to improve decision-making processes.Rate this question:
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- 17.
Assuming that diminishing marginal utility applies to both goods, if a consumer buys more plastic bins and fewer door hooks, the _____ of plastic bins will _____, and the _____ of door hooks will _____.
- A.
Marginal utility; rise; marginal utility; fall
- B.
Marginal utility; rise; total utility; rise
- C.
Marginal utility; fall; marginal utility; rise
- D.
Total utility; fall; marginal utility; rise
Correct Answer
C. Marginal utility; fall; marginal utility; riseExplanation
If a consumer buys more plastic bins and fewer door hooks, the marginal utility of plastic bins will fall, and the marginal utility of door hooks will rise. This is because of the principle of diminishing marginal utility, which states that as a consumer consumes more of a particular good, the additional satisfaction or utility derived from each additional unit of that good decreases. Therefore, as the consumer buys more plastic bins, the marginal utility derived from each additional bin will decrease. Conversely, as the consumer buys fewer door hooks, the marginal utility derived from each additional hook will increase.Rate this question:
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- 18.
Faruq spends all of his income on two goods: tacos and milkshakes. His income is $100, the price of tacos is $10, and the price of milkshakes is $2. If Faruq spends all of his income, the opportunity cost of one milkshake is equal to _____ tacos.
- A.
1/5
- B.
2
- C.
10
- D.
5
Correct Answer
A. 1/5Explanation
The opportunity cost of a good is the value of the next best alternative that is given up in order to obtain that good. In this case, if Faruq spends all of his income on tacos and milkshakes, the opportunity cost of one milkshake is equal to the number of tacos he could have bought with the same amount of money. Since the price of a taco is $10 and the price of a milkshake is $2, Faruq could have bought 10 tacos with the same amount of money he spent on one milkshake. Therefore, the opportunity cost of one milkshake is equal to 10 tacos, which can be expressed as 1/5 since 10 tacos is 1/5 of a milkshake.Rate this question:
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- 19.
Sam always tries to maximize his utility in his consumption of popcorn and soft drinks. Both of these goods are subject to diminishing marginal utility. Suppose the prices of these goods, along with Sam's income, do not change, but Sam decides he needs to decrease his consumption of popcorn. Holding everything else constant, this means that Sam would need to:
- A.
Decrease his consumption of soft drinks, and his marginal utility per dollar spent on popcorn will be greater than it was initially.
- B.
Increase his consumption of soft drinks, and his marginal utility per dollar spent on popcorn will be greater than it was initially.
- C.
Increase his consumption of soft drinks, and his marginal utility per dollar spent on popcorn will be less than it was initially.
- D.
Decrease his consumption of soft drinks, and his marginal utility spent on popcorn will be less than it was initially.
Correct Answer
B. Increase his consumption of soft drinks, and his marginal utility per dollar spent on popcorn will be greater than it was initially.Explanation
When Sam decides to decrease his consumption of popcorn, it means that he is willing to substitute popcorn with something else, in this case, soft drinks. Since both goods are subject to diminishing marginal utility, the more popcorn Sam consumes, the less satisfaction he gets from each additional unit. By decreasing his consumption of popcorn and increasing his consumption of soft drinks, Sam can increase his overall utility because the marginal utility per dollar spent on popcorn will be greater than it was initially. In other words, Sam will get more satisfaction from the additional soft drinks he consumes compared to the satisfaction he was getting from the additional popcorn.Rate this question:
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- 20.
The price of popcorn is $0.50 per box and the price of peanuts is $0.25 per bag, and Eddie has $10 to spend on both goods. The maximum number of bags of peanuts that he can purchase is:
- A.
40
- B.
20
- C.
10
- D.
5
Correct Answer
A. 40Explanation
Eddie has $10 to spend on both popcorn and peanuts. If he spends all of his money on peanuts, he can buy 10 bags since each bag costs $0.25. Therefore, the maximum number of bags of peanuts that he can purchase is 10.Rate this question:
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- 21.
Diminishing marginal returns means that:
- A.
Each additional unit of an input used will decrease output.
- B.
The firm is maximizing profit.
- C.
Each additional unit of an input used will increase output, but by smaller and smaller amounts.
- D.
Each additional unit of an input used will increase output by larger and larger amounts.
Correct Answer
C. Each additional unit of an input used will increase output, but by smaller and smaller amounts.Explanation
Diminishing marginal returns refers to a situation where each additional unit of an input used in production leads to a smaller increase in output. This means that as more of a particular input is added, the overall productivity of that input decreases. In other words, the initial increase in output may be significant, but as more units of the input are added, the incremental gain in output becomes smaller and smaller. This concept is important for firms to understand as it helps them optimize their production processes and make informed decisions about resource allocation.Rate this question:
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- 22.
(Table: Production of Cabinets) Examine the table The Production of Cabinets. If each cabinetmaker could be hired at no cost, how many workers would Tara's firm employ?
- A.
Two
- B.
Eight
- C.
Seven
- D.
Six
Correct Answer
C. SevenExplanation
Based on the table, we can see that the firm employs a total of seven cabinetmakers. Since the question states that each cabinetmaker can be hired at no cost, it would make sense for the firm to hire as many workers as possible to maximize production. Therefore, the correct answer is seven.Rate this question:
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- 23.
(Table: Tonya's Production Function for Apples) Examine the table Tonya's Production Function for Apples. The information provided illustrates that Tonya is operating:
- A.
In a very expensive location.
- B.
At a loss.
- C.
In the long run.
- D.
In the short run.
Correct Answer
D. In the short run.Explanation
The table shows the relationship between the quantity of inputs (labor) and the quantity of output (apples) in Tonya's production. In the short run, Tonya is unable to adjust her fixed inputs, such as land or capital. Therefore, she can only vary her variable input, which is labor. The table indicates that as Tonya increases the quantity of labor, the output initially increases but then starts to decline. This diminishing marginal product suggests that Tonya is operating in the short run, where she is experiencing decreasing returns to labor.Rate this question:
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- 24.
Which is NOT affected by the existence of diminishing returns?
- A.
Marginal cost curve
- B.
Average variable cost curve
- C.
Average total cost curve
- D.
Average fixed cost curve
Correct Answer
D. Average fixed cost curveExplanation
The existence of diminishing returns does not affect the average fixed cost curve because average fixed costs remain constant regardless of the level of production. This is because fixed costs do not change with the level of output. As a result, the average fixed cost curve is a horizontal line, indicating that the average fixed cost per unit of output remains the same regardless of how much is produced.Rate this question:
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- 25.
The total cost curve is:
- A.
Negatively sloped.
- B.
Vertical.
- C.
Positively sloped.
- D.
Horizontal.
Correct Answer
C. Positively sloped.Explanation
The total cost curve is positively sloped because as the quantity of output increases, the total cost also increases. This is due to the law of diminishing returns, where the additional units of input become less and less productive, leading to higher costs to produce additional output. As a result, the total cost curve has a positive slope, indicating that higher levels of output require higher costs.Rate this question:
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- 26.
(Table: Cost Data) Examine the table Cost Data, which shows data for a designer purse factory. The average fixed cost of producing 4 purses is:
- A.
$82.50
- B.
$12.50
- C.
$50.00
- D.
$47.50
Correct Answer
B. $12.50 -
- 27.
If an increase in output results in a decrease in average total cost, the corresponding marginal cost is:
- A.
Negative.
- B.
Less than average total cost.
- C.
Greater than average total cost.
- D.
Equal to average total cost.
Correct Answer
B. Less than average total cost.Explanation
If an increase in output results in a decrease in average total cost, it means that the cost of producing each additional unit is decreasing. This implies that the marginal cost, which represents the cost of producing one additional unit, must be less than the average total cost. Therefore, the correct answer is less than average total cost.Rate this question:
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- 28.
When an increase in the firm's output reduces its long-run average total cost, it achieves:
- A.
Economies of scale.
- B.
Diseconomies of scale.
- C.
Variable returns to scale.
- D.
Constant returns to scale.
Correct Answer
A. Economies of scale.Explanation
When an increase in the firm's output reduces its long-run average total cost, it achieves economies of scale. This means that as the firm produces more, it benefits from cost efficiencies and lower average costs. This could be due to factors such as increased specialization, better utilization of resources, and improved bargaining power with suppliers. As a result, the firm can enjoy economies of scale, leading to higher profitability and competitiveness in the market.Rate this question:
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- 29.
In the long run, all costs are:
- A.
Marginal.
- B.
Constant.
- C.
Fixed.
- D.
Variable.
Correct Answer
D. Variable.Explanation
In the long run, all costs are variable. This means that all costs can be adjusted and changed over time. In the long run, a business has more flexibility to make changes to its costs, such as adjusting production levels, changing suppliers, or implementing cost-saving measures. Fixed costs, on the other hand, remain the same regardless of the level of production or sales. Marginal costs represent the additional cost of producing one more unit, while constant costs do not change with the level of production.Rate this question:
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- 30.
(Table: Cakes) Examine the table Cakes. Pat is opening a small bakery to make and sell special birthday cakes. She is trying to decide how many mixers to purchase. Her estimated fixed and average variable costs if she purchases one, two, or three mixers are shown in the table. Assume that average variable costs are constant and do not vary with the quantity of output produced. If Pat purchases two mixers and bakes 200 cakes per day, what is her average total cost?
- A.
$8
- B.
$1,508
- C.
$1,492
- D.
$14.50
Correct Answer
D. $14.50Explanation
The average total cost is calculated by adding the average fixed cost and the average variable cost. In this case, since Pat purchases two mixers and bakes 200 cakes per day, the average fixed cost is $8 and the average variable cost is $6.50. Therefore, the average total cost is $8 + $6.50 = $14.50.Rate this question:
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